Payments regulations around the corner

The dramatic and disruptive growth of the payments industry has challenged traditional payment methods by creating innovative products that increase consumer choice and are more aligned with digital consumer lifestyles. At the same time, this growth and innovation has increased complexity in the financial services ecosystem, exposed customers to new and emerging risks, and heightened regulatory attention.

The Australian Government is on a regulatory drive to modernise, future-proof and create a fit-for-purpose payments regulatory architecture with service, strategy, safety and simplicity at its core. On 30 August 2021, the Australian Government released its final report of the Review of the Australian Payments System (‘Payments Review’) led by Scott Farrell and supported by Treasury, which included 15 recommendations to improve the regulatory environment for payment service providers and consumers.

In December 2021, the Australian Government released its response to the Payments Review agreeing to 14 of the 15 recommendations, which is expected to create efficiencies depending on the quality of deliberations and implementation. This response is a step in the right direction, with significant amount of work expected from the government, regulators, and industry.  The potential implications of the response (if successfully implemented) are the development of a new strategic plan and governance structure for the Australian payments industry, stronger action on existing and new policy issues, creation of mandates and technical standards over self-regulation, and movement of key personnel in regulators and industry. The complete Australian Government response to the Payments Review is available, which we have categorised under four pillars and summarised below.

Enhancing Governance and Leadership

• The Payments System Board which is chaired by the RBA Governor with representation from APRA is focussed on serving the best interests of customers and businesses. The end users of the payments ecosystem will be at the centre of policy design and implementation.
• The Government, through the Treasurer is expected to play an enhanced leadership role on payment matters, as the Treasurer has oversight powers and responsibilities over the financial system and is able to coordinate across various regulatory agencies. The Government has agreed to provide funding for Treasury to build a payments policy team, which is intended to assist the Treasurer in their enhanced leadership role and facilitate effective coordination between regulators and industry.
• The Government has agreed to introduce a Ministerial designation power, to be used by the Treasurer to designate payment systems and participants of designated payment systems where it is in the national interest to do so. The designation power includes the power to direct regulators to develop regulatory rules and designate payment systems as being subject to regulations implemented by the regulators.

This enhanced governance and leadership structure is intended to promote efficiency and competition in the payments ecosystem, provide payment services providers with more guidance on increasingly complex developments and provide a forum to address key marketplace challenges.

Developing Strategic Plan

Treasury, in collaboration with the regulators, industry, and consumer and business representatives has agreed to develop a 5 year forward looking Strategic Plan (‘Strategic Plan’) to outline the Government’s objectives and vision for the payments industry.

The Strategic Plan is expected to detail the policy priorities and strategic direction for the payments ecosystem, and be sufficiently flexible in line with the dynamic nature of the payments marketplace. It would enable more coordinated decision-making by the government, regulators, industry, and consumer groups.

Evolving Regulations and Licensing framework

• The Government has agreed to the recommendation to modernise and update the relevant provisions and definitions under the Payment Systems (Regulation) Act, 1998 which would empower and better position the RBA to regulate new and emerging payments systems and participants.
• RBA is expected to be vested powers to oversee and authorise appropriate entities (such as the Australian Payments Network) to set technical standards, which would enable such standards to better align with broader payment policy objectives and regulatory frameworks.
• The Government has agreed to consult with industry and regulators on a new single tiered payments licensing framework based on an updated and defined list of payment functions to be implemented as part of the AFSL Regime and administered by ASIC as the single point of contact for licensing applications (i.e. applicants apply for license solely through ASIC as opposed to multiple regulators and ASIC to coordinate on behalf of the license applicants with other relevant regulators). The consultations are also expected to cover the need for separate authorisations for provision of payments facilitation services and provision of stored-value facilities, and two tiers of authorisations based on scale of activity performed by the payment service provider (i.e. higher tier of authorisation to involve more extensive regulatory obligations than the lower tier of authorisation, such that licensing requirements are proportional to the level of activity that a payment service provider performs). The Government has stated it will consider the incorporation of obligations that facilitate easier access to payment systems into the licensing framework.
• The Government has agreed to the recommendation that the ePayments Code (‘Code’) obligations (ASIC regulation on electronic payment facilities in Australia) should be embedded into the payments regulation and license holders should mandatorily comply with the Code obligations. Currently, the Code is voluntary and, amongst other things, sets out rules for determining who pays for unauthorised transactions and establishes a regime for recovering mistaken internet payments. The proposal to mandate the Code would ensure better protection and better clarity on rights and obligations to Australian customers and businesses.
• Treasury plans to establish a regular Payments Forum in early 2022 with all relevant regulators including AUSTRAC to enhance coordination and alignment in regulatory approach and policy outcomes.

Organisations need to be perceptive and adaptable to the abovementioned regulatory changes such as an update of the Payment Systems (Regulation) Act, 1998 and mandatory application of the ePayments Code. Payments service providers should be prepared to consider the applicability of the new regulations to their organisations, assess such regulations against their current risk and control environment, and accordingly adjust their risk and controls framework to remain compliant.

Empowering customers and businesses

The Government has agreed to support regulators and industry bodies to provide educational materials to small businesses. The Government’s Digital Economy Strategy, the refresh of the National Financial Capability Strategy and RBA’s Review of Retail Payment Regulation is intended to incorporate initiatives which educate consumers and businesses, and in turn enhances their capability to deal with the evolving payments landscape and methods. 

Get ahead of the curve

The Australian Government is taking much needed steps to reform their payments regulations to better support innovation and disruption.

Treasury will commence consultations on the abovementioned measures, with comprehensive response to be provided by mid to end of 2022. Industry participants who are interested in being part of and influencing meaningful change within the payments regulations should partake in such consultations and actively engage with the government, regulators and payments industry bodies. Furthermore, payment service providers should be prepared to embrace and assess the impact of these regulatory changes and adapt quickly to remain relevant and customer centric.